Revisiting Eli Lilly's Valuation Amid Market Reassessment

Eli Lilly's stock price has declined by 23% over the past year, sparking debates about its valuation. Analysts see the company as undervalued by 17.5% due to its strong research and development pipeline, potential multi-billion dollar market opportunities, and aggressive profit growth projections. However, regulatory pricing pressures or overreliance on blockbuster drugs could challenge the bullish outlook. The stock's valuation based on earnings multiples suggests it may already be pricing in future potential, leaving little room for error.

Eli Lilly and Company (NYSE: LLY) has seen its stock price decline by 23% over the past year, sparking a debate about its valuation. Despite the recent downturn, analysts view the company as undervalued by 17.5%, attributing this to its robust research and development pipeline, potential multi-billion dollar market opportunities, and aggressive profit growth projections [1].

The company's second-quarter 2025 results were strong, with revenue at $15.56 billion, up 38% year over year, and net income nearly doubling to $5.68 billion. The GLP-1 franchise, particularly tirzepatide, marketed as Mounjaro for Type 2 diabetes and Zepbound for obesity, generated $8.6 billion in Q2 sales. However, the company faces political risks and drug pricing battles, including President Trump's Most Favored Nation policy, which aims to slash U.S. drug prices [1].

Eli Lilly's pipeline includes orforglipron, an oral GLP-1 pill that showed promising results in Phase 3 trials, and retatrutide, a triple agonist in development. These new drugs have the potential to reshape the obesity market and drive future growth. Analysts expect annual sales of $15–20 billion for orforglipron, making it the next growth engine for Lilly [1].

Despite strong financial performance, Eli Lilly's stock valuation remains a double-edged sword. At a forward P/E of 32.1 and P/S ratio of 12.4, the stock trades at a steep premium versus sector averages. The PEG ratio of 1.06 suggests that growth justifies part of this valuation, but the stock leaves little room for execution missteps or regulatory shocks. Analyst targets range from $650 to $1,190, indicating potential upside of about 21% from current levels [1].

Institutions own 83.9% of outstanding shares, reinforcing confidence in Lilly’s long-term growth. Insider ownership remains minimal at 0.16%, and short interest is light at just 1.1% of float, showing limited bearish conviction despite the elevated multiples [1].

The weight loss drug market still has vast prospects, with most institutions predicting that the market size will reach the billion-dollar level by the end of this decade. Eli Lilly's Zepbound underperformed in sales in the third quarter, which has raised concerns among investors about the outlook of the weight loss drug market. However, Novo Nordisk's Wegovy reassured the market with its strong sales performance [2].

Eli Lilly's CEO Dave Ricks stated that the potential demand for drugs like Zepbound remains strong in the market, and the company is heavily investing in its direct-to-consumer website to expand patient access channels. Other executives also pointed out that increased supply allowed the company to fulfill delayed orders from wholesalers in the second quarter, leading to an increase in Zepbound and Mounjaro inventory held by wholesalers [2].

In conclusion, while Eli Lilly faces regulatory pricing pressures and potential overreliance on blockbuster drugs, its strong pipeline and market prospects suggest that the stock may be undervalued. For existing holders, the innovation pipeline and global obesity demand justify staying invested. For new investors, NYSE: LLY is a Hold, with the opportunity to buy aggressively on dips below $750.

References:
[1] https://www.tradingnews.com/news/eli-lilly-nyse-lly-stock-price-holds-732-usd
[2] https://www.moomoo.com/news/post/18257058/record-tr4cking-news-afraid-to-buy-tokens-is-there-still-an-opportunity-for